Dalkeith Opportunity Case Study

Table of Contents

1. Investment Thesis
2. Key Challenges
3. Project Timeline and Construction Cost
4. Sales and Marketing
5. Final Outcome
6. Sponsor's Performance
7. Summary

Risk Profile
Opportunistic

Investment Start Date
07 April 2020

Investment Thesis

This investment was to participate in a residential land sub-division project in the highly exclusive and affluent Dalkeith area in Perth (the “Project”), managed by Nicheliving (the “Sponsor”), a reputable local developer. The project entailed the acquisition of a site totalling 2,024 sqm which would be divided into 9 smaller plots averaging 180 sqm each, and sold individually as townhouse developments. The investment thesis was to capitalise on a rare land re-zoning relaxation which permitted the sub-division of smaller land plots in Dalkeith, which is an exclusive residential suburb that traditionally had much larger land plots. This investment had a projected post-tax IRR of 17.0% over an estimated 12-month investment period, and a targeted Equity Multiple (or Return on Equity) of 1.15x. The investment kicked off on 7 April 2020.

Key Challenges

The COVID-19 pandemic caught the world by surprise, generating anxiety and uncertainty as Australia, similar to other countries worldwide, went into lockdown. Sales and marketing activities, including physical works for the Project, came to a halt in late April 2020 as safe distancing restrictions were imposed, and borders and schools were also closed in Perth for at least one month, with internal restrictions only being lifted in October 2020. As a result, progress on both marketing and construction were impeded beyond control throughout much of June to August 2020.

Project Timeline and Construction Cost

The Project faced several timeline challenges in construction, in particular the delay of the vital Development Approval (DA), as the local planning council postponed the physical meeting several times due to the pandemic. Without a DA in place, sales and marketing could not be carried out in full force. The DA was finally obtained in late 2020, and the Project timeline faced a potential delay of up to 3 months. Throughout the whole project duration, RV held monthly Project Control Group (PCG) meetings with the Sponsor to monitor the project cost and ensured that the Sponsor kept the construction cost within the agreed budget.

Sales and Marketing

Despite the subdued market conditions, no expense was spared in sales and marketing activities. A full marketing campaign was launched in June 2020 which included a dedicated website, YouTube video, mock-up show suite, and multi-channel advertisements (local papers, online portal, social media, sales agent network, letterdrops). Towards the end of February, 2021, three confirmed sales were achieved for the Project. As the deadline of the Project loomed nearer, RV started discussions with the Sponsor on various exit possibilities. After several rounds of discussions, the agreed exit strategy was to secure a bulk purchaser for the remaining six units.

Final Outcome

With considerable joint effort from both the Sponsor and RV, a bulk purchaser was identified. RV remained in close discussions with the Sponsor throughout the process to ensure that the bulk purchase was done successfully. The final purchase price for the remaining units were slightly above our underwritten pricing, resulting in a higher return on equity for our investors. Favourable market conditions after COVID-19 restrictions were lifted had also helped in creating positive market sentiments. Although the overall investment timeline was slightly delayed by one month to a total of 13 months, the final returns were a net IRR of 16.8% and a Equity Multiple of 1.18x, in line with our original projections. While RV does not underwrite an investment with currency gains as part of the objectives, the investment has nevertheless benefited from the appreciation in the Australian Dollar against the Singapore Dollar since the investment started, resulting in an astounding 36.1% IRR and 1.38x EM* on an SGD-adjusted basis.

Sponsor's Performance

Nicheliving has been a reliable and trusted Sponsor, fulfilling all their contractual obligations. The monthly Project Control Group meetings with RV were professionally and promptly carried out, and quarterly reports were submitted on time. The Project construction cost was kept within budget and statutory approvals were followed up on closely.

Summary

The pandemic had no doubt brought on numerous challenges for this Project. Despite these unforeseen circumstances, RV was resolute in finding a solution to achieve the best outcome for our investors with our exit strategy. We are delighted that we have achieved a favourable result for all of us involved in this deal, and RV would like to express our sincere appreciation and gratitude to all investors for their continuous support and for believing in us. Thank you!

* Based on mid-market rate from XE currency of $0.875SGD:$1.00 AUD in 7 April 2020 and $1.030 SGD: $1 AUD in 28 April 2021

DISCLAIMER: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this article, will be profitable, equal any corresponding indicated historical performance level or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalised investment advice from RealVantage. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.

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